Treasury 7-Year Note Auction Attracts Most Demand Since December

April 25 (Bloomberg) -- The Treasury’s auction of $29
billion of seven-year notes attracted the highest demand this
year as investors looked past a report on weekly jobless claims
that pointed to an improving U.S. labor market.

The bid-to-cover ratio, which gauges demand by comparing
total bids with the amount of securities offered, was 2.71, the
highest since December and compared with an average of 2.66 at
the past 10 sales. The notes were sold at a yield of 1.155
percent, compared with a forecast of 1.163 percent in a
Bloomberg News survey of nine of the Federal Reserve’s 21
primary dealers. Yields on 10-year notes were little changed as
volatility in the Treasuries market reached a record low for a
fourth consecutive day.

“The auctions went really well,” said Christopher
Sullivan, who oversees $2.2 billion as chief investment officer
at United Nations Federal Credit Union in New York. “Even at
these rich levels, we still see Treasuries garnering
considerable interest. We expect a continuation of these levels
of volatility through the foreseeable future.”

Benchmark 10-year notes yielded 1.71 percent at 4:59 p.m.
New York time, according to Bloomberg Bond Trader data. The
price of the 2 percent note due February 2023 fell 1/32, or 31
cents per $1,000 face amount, to 102 19/32. The yield fell to
1.64 percent on April 23, the lowest since Dec. 12.

The yield on current seven-year notes was 1.12 percent,
after dropping to 1.06 percent two days ago, the least since
Dec. 12.

‘Well-Received’

“The seven-year was well-received,” said David Coard,
head of fixed-income trading in New York at Williams Capital
Group, a brokerage for institutional investors. “It’s hard to
go long when you are at these levels. Maybe there’s some
reluctance to get involved at these frothy levels.” A long
position is a bet an asset will increase in value.

Indirect bidders, a class of investors that includes
foreign central banks, bought 39.3 percent of the seven-year
notes today, also the highest since December and compared with
35.5 percent at the March sale. The average for the past 10
sales is 38.6 percent.

Direct bidders, non-primary-dealer investors that place
their bids directly with the Treasury, purchased 19.7 percent at
today’s sale, compared with 19.5 percent at last month’s auction
of the securities. The average at the past 10 auctions is 16.7
percent.

The auction is the final of three note sales this week
totaling $99 billion.

Auction Demand

Seven-year notes have gained 1.1 percent this year,
compared with a 0.7 percent return by Treasuries overall,
according to Bank of America Merrill Lynch indexes. The seven-year securities returned 3.9 percent in 2012, while Treasuries
overall advanced 2.2 percent.

Bidding has slowed at Treasury auctions this year, with the
$721 billion in debt sales attracting an average of $3.01 in
orders to buy per dollar of debt sold, compared with a record
$3.15 in 2012, data released by the Treasury and compiled by
Bloomberg show.

The sales this week will raise $59.05 billion of new cash,
as maturing securities held by the public total $57.95 billion,
according to the U.S. Treasury.

Yields rose as high as 1.72 percent today after a report
showed fewer Americans than forecast filed jobless claims.
Applications for jobless benefits decreased by 16,000 to 339,000
in the week ended April 20, the lowest since March 9, according
to Labor Department data released in Washington.

Weekly Claims

Economists projected 350,000 jobless claims, according to
the median estimate in a Bloomberg survey of 49 economists, with
estimates ranging from 340,000 to 370,000. The Labor Department
revised the previous week’s figure up to 355,000, from an
initially reported 352,000. A spokesman said the claims data
typically bounce around this time of year.

“We’re going to be in a period of somewhat soft data for a
little while,” said Jefferies’s Simons. “Q3 is when it starts
to pick up; the economic data is going to improve a little
bit.”

Treasury volatility as measured by Bank of America Merrill
Lynch’s MOVE index fell to a record 49.39 basis points, below
the low of 49.75 basis points reached yesterday, as the Fed
supports the market with asset buying under its quantitative-easing program. The data stretches back to 1988.

The Fed is buying $85 billion of Treasury and mortgage debt
a month to prop up the economy by putting downward pressure on
borrowing costs. At their meeting last month, several members of
the Federal Open Market Committee advocated slowing purchases
and stopping them by year-end.

Since then, seven have voiced support for maintaining the
current pace, including five who vote on the policy-making
panel: Governor Daniel Tarullo, New York Fed President William
C. Dudley, James Bullard of St. Louis, Chicago’s Charles Evans
and Boston’s Eric Rosengren.